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“Take the animal kingdom. The square-cubed law explains why a flea, even if it were the size of a man, would not be capable of jumping to the moon. It explains why a hippopotamus cannot turn somersaults. And it explains why King Kong and Godzilla were physiological impossibilities – the weight transfer associated with a single step would have shattered their thigh bones.
There is no longer evidence of economies of scale at bank sizes above $100 billion. If anything, there is now evidence of diseconomies which rise with bank size, consistent with big banks becoming “too big to manage”. Subtracting this subsidy, removing the state crutch, would suggest a dramatically lower socially-optimal banking scale. Like King Kong and Godzilla, these giants would arguably then be physiological impossibilities.”

So what is to be done?

1. Place limits on bank size. How do you do that? Not exactly rocket science. Just cap their balance sheet exposures, for this will reduce their system-wide losses in the event of big bank failure.

2. Separate investment and commercial banking to make sure that retail and investment cultures do not cross-polinate in the toxic ways they have done so far.

3. Inject more competition in the largely oligopilistic banking system we have right now. Can anyone in the banking world be openly against competition?